ObamaCare Rate Shock In Maryland

Maryland's largest insurer has proposed hiking average individual rates by 25% next year — and up to 150% for younger enrollees — to meet ObamaCare mandates.

Meanwhile, CareFirst BlueCross BlueShield proposed raising premiums for small employer plans by an average 15%.

The proposed ObamaCare rates in Maryland, just the third state where insurers have declared their intentions, reinforce concerns raised by actuaries that a rate shock may be coming.

While regulators in solidly Democratic Maryland will have their say before hefty rate increases are approved, and they may be whittled down, CareFirst said it's already targeting a 0% margin, down from 3% previously.

To fulfill its not-for-profit mission, CareFirst said it was "seeking only to cover its costs over the long term by setting premiums at a level essentially equal to the costs of providing coverage.

If CareFirst's assessment of costs is on target, any dilution of premium hikes would deplete reserves and hurt its financial soundness.

The primary factor driving the increase is a shift to guaranteed issue, with insurers no longer able to price policies based on health status. ObamaCare's state insurance exchanges will be able to price a policy based on age, but the law places a maximum 3-to-1 ratio between premiums for those nearing 65 and those under 30 vs. the 5-to-1 that is common today.

These changes, along with the availability of government subsidies intended to make coverage affordable, will result in an overall sicker population in the individual market. CareFirst expects average morbidity, an insurance measure of disease incidence, to rise 25%.

On top of that, CareFirst expects a 4.2% increase in medical costs; a 2% cost increase due to newly mandated health benefits; and additional taxes and costs equal to 3%-4% of premiums.

The company acknowledged the challenge in modeling how individuals and companies will respond to the vast changes shaking up the market. But it said its projected increase in morbidity was in the lower half of modeled scenarios.

A recent study by the Society of Actuaries lends support to CareFirst's contentions. The group projected that the national per-person cost of claims in the individual market would rise by 32% due to ObamaCare. In Maryland, the actuaries projected an increase of more than 60%.

By comparison, in Vermont and Rhode Island, the two other states where insurers have proposed ObamaCare rate hikes, the actuaries projected modest decreases in per-person claims.

In general, the actuaries concluded that companies with higher-cost members would discontinue coverage. Meanwhile, those opting to remain uninsured would be younger and healthier than the current uninsured population.

"Those most likely to sign up will need coverage the most," said Joe Antos, health economist at the American Enterprise Institute.

He called CareFirst's 25% proposed rate increase "the best that you can hope for.

Antos expects companies like CareFirst to eat into their reserves in ObamaCare's first year. That will either necessitate further steep hikes in 2015 or changes to the law, he said.

For those who qualify for ObamaCare's income-based subsidies, the rate shock may be limited. But they still might experience deductible shock — particularly those with income above 250% of the poverty level who get help with premiums but not out-of-pocket costs.

CareFirst's lowest proposed deductible on the lowest-cost bronze-level ObamaCare plan was $3,500 for individuals. For the small group market, the lowest deductible was $4,000.